Diamondback Energy Inc.’s takeover of Endeavor Energy Resources LP has marked the end of a year of roughly $250 billion in US oil and natural gas deals that consolidated a fractured collection of private wildcatters into larger corporations. The stock of Diamondback Energy Inc. jumped 11% after the acquisition announcement.
The Shale explorer, Diamondback Energy Inc., continued to showcase its rising value, touching a record high and swelling its market valuation by $5 billion. The consolidation wave in the US oil and natural gas market has been attributed to years of overspending by shale drillers. This has led to an era of survival of the biggest, with big companies racing for operational scale and investor relevancy. Despite America’s status as the world’s premier oil producer, energy makes up just 3.8% of the S&P 500 Index.
The consolidation process has necessitated the shift towards a new era, turning it into a game of consolidation or getting left behind. This process enables companies to gain more operational scale and investor relevancy in the market. The takeover of Endeavor Energy Resources LP by Diamondback Energy Inc. will double its market value, positioning it as a contender with EOG Resources Inc. for the title of the biggest pure-play shale stock.
One of the outcomes of the acquisition spree is a slowdown in oil production growth, which could support global crude prices and alleviate some pressure off the OPEC alliance. After merging with Diamondback, Endeavor Energy Resources LP’s growth is expected to slow down, with the cash that would have gone to leasing drilling rigs and related costs being freed up for dividends and buybacks.
This acquisition also signifies a changing of the executive guard, as Endeavor’s founder will become America’s richest oilman. The approval and embrace of these transactions are attributed to the validation from major investors in the industry.
The deal marks the beginning of a new era in the US oil and natural gas industry, with major implications for the market and the players involved. With the market embracing these transactions, it is evident that the future of the industry will be characterized by consolidation, efficiency gains, and a redefined landscape for major players.
